Geopolitical Premium Recedes. International Oil Prices Plunged Nearly 30% in Second Quarter, Wall Street Warns Supply Glut Is Still Intensifying

TradingKey - As the temporary U.S.-Iran peace agreement takes effect, shipping in the Strait of Hormuz is gradually returning to normal. After experiencing a surge in oil prices in the first quarter triggered by geopolitical conflicts, international crude oil prices plunged by nearly 30% in the second quarter, marking the largest single-quarter decline since 2020.

Currently, several Wall Street institutions, including Goldman Sachs ( GS) and Morgan Stanley ( MS ), have warned that the global oil market is accelerating toward oversupply, and future oil prices face further downward pressure.

Geopolitical premium fades, oil prices return to fundamentals

In the first half of 2026, the international crude oil market experienced a dramatic roller-coaster ride. In the first quarter, the escalation of the US-Iran conflict led to a partial blockade of the Strait of Hormuz, with market panic driving Brent crude prices past $126 per barrel at one point.

However, entering the second quarter, as the two sides reached a temporary ceasefire agreement and navigation through the Strait of Hormuz gradually recovered, oil prices fell back rapidly. As of June 30, the settlement price of Brent crude stood at $72.92 per barrel, and WTI crude was at $69.50 per barrel, largely returning to pre-conflict levels.

Warren Patterson, head of commodities strategy at ING, pointed out that there is currently "almost no geopolitical risk premium" in oil prices, and the market is effectively pricing the temporary US-Iran ceasefire as a permanent agreement. This shift reflects a market reassessment of geopolitical risks, as investors begin to focus more on actual supply and demand data rather than purely on geopolitical events.

Samantha Dart, co-head of global commodities research at Goldman Sachs, said that as shipping through the Strait of Hormuz returns to normal, the global oil market is expected to re-enter a state of oversupply.

She expects the average daily global crude surplus to exceed 3 million barrels in 2027. Even considering the approximately 1 million barrels per day of demand from countries replenishing their strategic reserves, the average daily surplus will still remain close to 2 million barrels.

Morgan Stanley's assessment was even more pessimistic. The bank cut its oil price forecasts for the second time in two weeks, lowering its Brent price forecast for the fourth quarter of 2026 from $80 per barrel to $75 per barrel, and its forecast for the end of 2027 to $70 per barrel.

Analysts at the bank noted that the recovery speed of the Strait of Hormuz exceeded expectations. Coupled with record-high US crude oil production and weak demand in China, the implied global oil market supply surplus in 2027 will reach 4.8 million barrels per day.

According to data from the US Energy Information Administration, US daily crude oil production rose to 13.93 million barrels in April, hitting an all-time high. At the same time, Saudi Arabia's pipeline shipments reached a record high, the UAE accelerated its pipeline expansion plans to bypass the Strait of Hormuz, and other oil-producing nations also boosted output, further intensifying oversupply pressures.

Strategic reserve replenishment may become a future variable

Despite the clear current oversupply, potential supporting factors remain in the market. Multiple countries released large amounts of strategic petroleum reserves during the crisis and now urgently need to replenish them. The International Energy Agency previously coordinated a record release of 400 million barrels of crude oil, and the US Strategic Petroleum Reserve has declined from 415 million barrels at the end of February to 331 million barrels as of June 19, marking its lowest level since 1983.

Goldman Sachs expects that countries replenishing their strategic petroleum reserves will absorb slightly over 1 million barrels per day of production, which will partially offset oversupply pressures. However, this demand will take time to materialize and is relatively limited in scale, making it unlikely to alter the overall oversupply situation in the short term.